Monday, May 21, 2012

Land of a Thousand Taxes

Government budgets are tight pretty much everywhere, so it's no surprise that there are some fairly ridiculous tax proposals floating around. Obviously, there's no such thing as a popular tax--you're taking property away from someone by force, after all--but the more economically efficient taxes are often the least politically popular ones, so it's difficult to find a practical way of determining what direction to go.

First off, let's get this straight--I think taxes should be minimal, and that is roughly in line with what I think the government should be doing. So when I'm advocating tax schemes below, it's with the intention that it's still as low as could possibly be done.

I've never been a fan of single-source tax proposals. Just like anything else, it's not exactly difficult to alter your behavior to avoid paying taxes. Some people call this a loophole, but it's not always that--think of the "sin" taxes, such as on booze and tobacco--that are done in part because they are inelastic (smokers will still buy smokes regardless of price) but also to discourage that behavior (they will stop after a certain point). Likewise with various property taxes--a good way to subtly control the sort of individuals that live in your area (cough, cough) is to raise the property tax rate as a "price" of living in a better-off area. You can't look at these laws, then turn around and claim that slapping a tax on corporations doesn't change how they do business. Of course it does.

So single-source taxes (everyone only pays property taxes, or sales tax, or income tax, etc.) are usually a bad idea--the more creative one is, the easier it is to avoid taxes altogether. Sure, it's less efficient, but throwing out four or five types of taxes will pretty much guarantee that a specific individual is going to get hit with a tax at some point.

There's also no shortage of very stupid ideas concerning taxation. Sometimes it involves taxing unusual things--there was a Johnstown Flood Tax on alcohol in my home state that was intended to pay the victims of that disaster, yet mysteriously are still on the books despite the fact that its goal was accomplished in the 1940's.

So when this story is released, it makes me cringe. Nurses (for some reason) are petitioning for a financial transaction tax--50 cents on every $100 worth of financial transaction. I do not know why a group nurses are proposing this, since it doesn't have anything to do with health care, but the fact that they're branding it a 'sin' tax (apparently making money is a sin) probably explains a lot. It's a stupid idea for lots of reasons--it would grind nearly all liquidity in the market to a halt; it would make our financial system significantly less efficient as people artificially trade less, and it would be much easier just to tax the income from these transactions, like we already do--and it takes only a few minutes of thought to realize this would effectively destroy the nurses' own pension system. And, yes, we used to have a tax on transactions and some other nations have it, but the system is much different now than it was a century ago, just like the tax laws are different in each nation.

Italy also found itself on the wrong end of a tax proposal, as they planned to levy a tax on pet ownership. Italy's own financial situation is pretty shaky, but even this tax proposal caused such a furious reaction it was retracted the same day it was made.

There's no perfect tax solution. Sadly, it doesn't involve taxing the rich (they already pay more, and they're the ones that will be creating new jobs) or somehow abolishing hated taxes (if you're going to throw out property taxes, as many cranky local municipalities want to do, you're just going to end up paying for it some other way). The worst part is eventually one of these awful ideas will become law.